12/02/2008 @ 11:02AM

Q&A: India's Outsourcers Play Defense

It is a tough time for India’s once booming outsourcing industry. Already reeling from a pullback in spending, especially by American financial services firms, they are being fingered by analysts as one of the sectors that could suffer under the new Obama administration and Democrat-dominated U.S. Congress, if companies are encouraged through tax incentives, or if financial services firms are required as a consequence receiving government aid, to keep jobs at home. Meanwhile, last week’s terror attacks across Mumbai dealt a body blow to foreign investor confidence in the country as a whole. Responding to the spectrum of concerns,
Girish
Paranjpe
Girish Paranjpe
, the joint chief executive of
Wipro
, one of the “big four” outsourcers, along with
Infosys
, Tata Consultancy Services and
Satyam Computer Services
, spoke to Forbes.com, about the investment climate and the pullback in business by some clients that the information technology companies are having to deal with.

What will the impact of the attacks be on Indian business?

The attacks have come at a particularly unfortunate time. There is, broadly speaking, strong demographics supporting growth, so to have a terrorist incident like this is sad and depressing. It’s more about investor confidence, and foreign investors who tend to get hugely scared by such things.

How long will it take for things to return to normal?

It will be different in different countries. Some are quite okay today and quite willing to go to India, whereas others are saying, “not for a while.” It depends on what you are used to, what your risk tolerance is. In Britain, people have been used to dealing with the problems in Ireland for a while.

In your view, how has the Indian government handled the situation?

Many things could have been done better. But could anything have been done to have prevented it from happening at all? That I dont know.

What needs to be done to restore confidence?

We have to strengthen our security mechanisms, not just in Mumbai but in all centers of business. We have to show we have learnt from this episode and are not becoming lax all over again. This may mean some inconvenience, people getting frisked, but I see no choice. We have to do something. We may also have to investor a lot more, on our part, in private security, at least when it comes to campuses.

What was the situation looking like before the attacks? How are you coping through the global financial crisis?

Clients are not cutting back but holding their breath [especially in financial services]. They are not spending on anything, whether … existing projects or new projects. This means that some new projects are not getting started as planned; in other cases, subsequent phases of projects are being postponed. In some rare cases, they have cancelled projects which were in flight.

Which sectors are affected?

We have seen growth affected in some sectors, particularly financial services, retail and, to some extent, semiconductors. On the other hand, energy has been strong, some parts of manufacturing have been strong, and telecommunications [providers] have been quite okay.

What will be the impact on the outsourcing landscape?

There will be some consolidation driven by clients. There will be a flight to size and quality. That will put pressure on some of the medium-sized and smaller plays to choose a different path. They may have to become more niche.

There has been talk of American companies under the Democrats being forced to cut back the work they send Indian IT services companies. How concerned are you?

No one knows as yet, as all the players haven’t been announced, and there are some questions about how public ownership of banks is going to play out but broadly speaking, the view is that, given the basic philosophy in the U.S., there will be operational freedom. There may be constraints on dividends and pay, but there is unlikely to be any interference in operational decisions.

How concerned are you about the China threat?

Few countries have the depth of India’s talent pool apart from China, so in the long term China and India will be where the work gets done. However, we have ten years on them. In some sectors, such as engineering and design, where language is not a barrier, we are seeing this happen. Financial services takes longer.